Tax incentives are a good thing for business, taxpayers

Published 8:22 am Wednesday, October 3, 2018

As reported in this paper, the Elizabethton City Council and the Carter County Commission have recently approved an incentives policy to promote the growth and recruitment of new industry and businesses to Elizabethton and Carter County. I’ve had a few people ask what the policy was all about and why do we even need an incentives policy, so I thought I would write about it.
The policy that the Council and the Commission passed, gives the authority for the respective Industrial Development Boards to give incentives to companies meeting certain requirements. These include things like hiring a minimum number of people and providing health care and a retirement plan for those people, building an addition to an existing facility, and expanding equipment at the facility. Additionally, this policy also gives these same incentives to tourism-based businesses — which is now unique only to Carter County in Tennessee.
Having this policy in places gives companies and economic development staff the assurance that incentives can be offered. Essentially, most companies don’t want their business aired in a public meeting — especially if they’re negotiating on an expansion — to help protect their stock-holders and prevent their competition from finding out. Without this policy in place, every time a company wanted an incentive they would have to go before City Council to negotiate one agreement and before the County Commission to negotiate another agreement which may be vastly different. This policy streamlines this process for the business.
It’s also beneficial for the government and taxpayers in that we’ve developed the policy based on what the true return-on-investment of the business will be to the tax base. Unlike some incentives in the past, where we’ve arbitrarily given all the property taxes away with little to no consideration to the fiscal impact on the city and county, this policy takes those elements into consideration. It offers a workforce incentive based on existing ratios of workers living in Carter County, payroll to sales tax, and city to county sales tax. This looks at return-on-investment by ensuring what the city and county give in workforce incentives comes back in the form of sales tax revenues.
A similar analysis was done (albeit much easier to calculate) with real property and personal property taxes and in these incentives, we only incentivized the increase in the property taxes that would have been paid on the expanded building or new equipment — like tax increment financing. This helps ensure that the city and county will continue to receive the revenues they have always received from these businesses in order to pay for the public services that they still consume.
Lastly, to prevent the incentives from getting too out-of-hand, we have capped them at 40% of what the existing company already pays in taxes. Keep in mind, that an industry may pay $40,000-$100,000 in property taxes annually and when the city or county decide to fully abate their taxes the government lose all that money at once — which could easily be 2-3 people’s salary and benefits. Capping the incentive at 40% will ensure that the company will pay at least 60% of what they’ve always been paying in taxes while still giving them relief on any capital expenditures.
This policy was intentionally written to protect the taxpayers while incentivizing existing and new companies and its adoption serves as a win-win-win for the companies, governments, and taxpayers. Let’s talk about it!
(Jon Hartman is Director of Planning & Economic Development for the City of Elizabethton. He can be contacted at 542-1503 or via e-mail at:

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